House Republicans Propose $2.2 Trillion Fiscal-Cliff Plan

Dec. 3 (Bloomberg) -- House Republicans, rejecting
President Barack Obama’s demand for higher tax rates, countered
with a $2.2 trillion deficit-cutting plan that would trim
Medicare and Social Security and cap tax deductions for top
earners.

The proposal, in a letter today to Obama from House Speaker
John Boehner and other Republican leaders, seeks $800 billion in
tax revenue in the next decade and would slow the growth in
Social Security cost-of-living payments. It would reduce
entitlement program costs by at least $900 billion, including
raising the Medicare eligibility age, and cut $300 billion in
discretionary spending.

The proposal “does not meet the test of balance,” White
House Communications Director Dan Pfeiffer said in a statement.
“In fact, it actually promises to lower rates for the wealthy
and sticks the middle class with the bill.” He said the plan
included “nothing new.”

Obama and congressional leaders are trying to avert more
than $600 billion in tax increases and automatic spending cuts
starting in January. The talks reached a stalemate late last
week when Republicans rejected Obama’s proposal to raise $1.6
trillion in taxes, including by raising tax rates on the top 2
percent of earners.

Today’s offer is “absolutely movement,” said Joe Minarik,
a budget aide in President Bill Clinton’s administration. “If
Republicans accept revenues, Democrats have to move a little
bit” on entitlements, he said.

Social Security

Still, Minarik said, “Democrats don’t want to touch”
Social Security and the Medicare eligibility age. Obama and
other Democratic leaders have repeatedly said that Social
Security is off the table

Boehner said the Republican offer tracks a proposal last
year by Clinton’s former chief of staff, Erskine Bowles, which
would generate revenue by limiting deductions and credits
instead of raising tax rates.

Bowles, though, said in an e-mailed statement that the
proposal doesn’t reflect his plan. “Circumstances have changed
since then,” he said. “It is up to negotiators to figure out
where the middle ground is today.”

Boehner called today’s Republican plan a “credible plan
that deserves serious consideration by the White House.” He
described last week’s White House proposal for $1.6 trillion in
tax increases as a “la-la land offer.”

Stocks fell. The Standard & Poor’s 500 Index dropped 0.5
percent to 1,409.46 at 4 p.m. in New York. The Dow Jones
Industrial Average lost 59.98 points, or 0.5 percent, to
12,965.60.

Chained CPI

Under the proposal, increases in Social Security benefits
would be reduced under a new method of calculating cost-of-living increases. The so-called chained consumer price index
would also apply to cost of living adjustments for government
pensions and to setting income-tax brackets.

The plan would raise the eligibility age for Medicare
recipients, currently 65, although it didn’t specify the size of
the increase. That would save $100 billion, according to an
excerpt of Bowles’s Nov. 1, 2011, congressional testimony
attached to the letter sent to Obama.

“To protect millionaires, Speaker Boehner’s offer would
force middle-class families to pay higher taxes,” Senate
Majority Leader Harry Reid, a Nevada Democrat, said in a
statement. “Republicans have made an offer, but now it is time
for them to get serious about forging a balanced approach.”

Boehner’s letter said the additional $800 billion would
come through “pro-growth tax reform that closes special-interest loopholes and deductions while lowering rates.” He
didn’t lay out specific proposals for curbing tax breaks and
didn’t offer additional revenue for 2013.

Dynamic Scoring

In the past, many Republican calls for additional revenue
through a rewrite of the tax code have meant the money would
come from higher economic growth spurred by the overhaul. Obama
and the Congressional Budget Office won’t accept so-called
dynamic scoring.

Republican aides said the $800 billion would come from
conventional scoring, which means there would be a tax increase.

In a series of network television appearances over the
weekend, Treasury Secretary Timothy F. Geithner challenged
Republicans to make a counteroffer to the president’s plan. He
said there would be no agreement without higher income tax rates
on the wealthiest Americans. Boehner said yesterday that the
White House was wasting time and that the talks were
“nowhere.”

Obama’s plan would trade $600 billion in spending cuts for
$1.6 trillion in tax increases, primarily targeting families
with more than $250,000 in annual income.

Last week, Republicans said they would only consider
creating new revenue by ending or limiting some deductions and
credits and possibly by capping income-tax deductions for high
earners.